Sproull v. Commissioner - 16 T.C. 244 (1951)

Rule:

Any economic or financial benefit conferred on an employee as compensation in the taxable year is taxable to him in that year.

Facts:

The Commissioner included in the taxpayer's taxable income an amount that was transferred in trust for the taxpayer by his employer, but which was thereafter paid by the trustee to the taxpayer in installments in subsequent years as required by the trust agreement. The sum was declared by the employer to be in consideration of services the taxpayer had theretofore performed for the employer, and because of the inadequacy of the salary the taxpayer had been paid for such services. The Commissioner determined a deficiency in the taxpayer's income tax for the year the trust was established. The taxpayer protested the determination, arguing the income should have instead been taxed when the installments were received from the trustee. 

Issue:

Was the Commissioner correct in including in the taxpayer's taxable income for 1945 the amount of $ 10,500 transferred in trust for the taxpayer in that year by the taxpayer's employer, but which was thereafter paid by the trustee to the taxpayer in installments in 1946 and 1947 as required by the trust agreement?

Answer:

Yes.

Conclusion:

The court found for the Commissioner. Because economic or financial benefit was conferred on the employee as compensation in the taxable year, the expenditure of the funds in setting up the trust was taxable to him in that year. The establishment of the trust itself conferred an economic and financial benefit on the taxpayer, which was properly taxable to him in the year the fund was irrevocably paid over for his benefit.